Napolitano uses campaign ruling to make more than $200,000 in interest on 1998 campaign loan

U.S. Rep. Grace Napolitano has paid herself more than $200,000 in interest on a 1998 campaign loan, according to campaign finance reports.

The $150,000 loan from herself was made during a June primary election where she faced James Casso, who was chief of staff at the time for outgoing Rep. Esteban Torres, D-Pico Rivera. Napolitano, D-Santa Fe Springs, ended up winning by 618 votes.

She said at the time the money had come from her retirement account she had from her time working for Ford Motor Co.

Beginning on Dec. 29, 1998, when Napolitano paid herself $15,000 in interest, she has since collected $205,922 in interest, according to a review by this newspaper of nearly 60 reports filed with the Federal Elections Commission.

In an effort to pay her debt, Napolitano held a "debt retirement" fundraiser on June 25, 2008, in Washington, D.C.

The money was originally loaned at 18 percent interest, according to the reports. The interest rate was reduced to 10 percent in 2006.

The remaining principle on the loan is $85,272, according to the latest report filed on Jan. 30, 2009. The single biggest chunk of interest, $63,000, was paid on Jan. 4, 2008.

Napolitano has been able to earn the money thanks to a 1999 ruling by the Federal Elections Commission after Casso filed a complaint during the election. Casso said this week he didn't want to comment on the issue.

"While candidates are permitted to charge their campaign committees interest for any loans they have made to their committees from personal funds, the rate of interest that candidates charge to their committees must be `commercially reasonable,"' wrote Lois G. Lerner, then an associate general counsel for the FEC.

Craig Holman, government affairs lobbyist for Public Citizen, a Washington, D.C. consumer advocacy group, said it's unheard of to make money off of a campaign loan.

"The standard practice is once a campaign starts pulling in sufficient amounts of money you pay off the loan," Holman said.

"I've never heard of anyone reaping off these profits," he said. "It's looks like a 2-1 profitable margin. The interest rate is exorbitantly high."

While federal law bans using campaign funds for personal use, the FEC apparently gave her a "green light," Holman said.

Napolitano isn't commenting on the issue, said Christopher Honey, her spokesman.

She isn't the only local congressional member to loan herself money. Rep. Gary Miller, R-Brea, loaned himself $230,000 in his 1998 campaign. While Miller has since paid off the loan, he never charged interest.

Miller never returned a phone call seeking comment.

Candidates for state offices in California aren't allowed to charge interest on loans they made to their campaigns.

Napolitano does have her defenders.

"It may sound bad on the surface, but if you really look at it, you see an average person - not a person of means - putting her own money up to make this run," said Pico Rivera Councilman Ron Beilke.

"When you consider the risk she took, she deserves to be paid back," he said. "I think you've got to consider that this is money that could have been working for her toward her retirement," he said.

Michael Toner, a former Republican member of the FEC who was general counsel for George W. Bush's 2000 presidential campaign, told Bloomberg.com that he "cannot recall a situation" where a candidate collected more interest in sums that "actually exceeded the original loan balance."

"It really is extraordinary," Toner said.

Barbara Stone, a Whittier Republican activist, was more sympathetic to Napolitano.

"I understand her thinking," said Stone, chairwoman of the Southeast chapter of the Los Angeles County Lincoln Clubs, a Republican fundraising group.

"She wanted to seed her campaign and it was a tough one," she said. "She basically took the money out of her retirement fund. She's been replacing retirement in her mind."

Still, it doesn't look good at a time when congressional members are complaining about corporate executives taking bonuses and high salaries, Stone said.

Montebello Councilman Bill Molinari said that while charging interest is legal, it's not right.

"It seems very unethical for a public official to raise money to retire a debt and then get the money to pay interest that at one time was 18 percent and now is 10 percent," Molinari said. "And most pension funds are losing money these days."

Molinari believes the FEC ruling would allow a candidate to get a loan at 4.5 percent, loan it to a campaign and pay it back at 18 percent.

"It makes a nice way to supplement your income," he said. "Why should congressional members have another perk the average person doesn't have available to them?"